Mexican Delays in Oil Deliveries Aggravate U.S. Shortage

By J. P. SmithMay 19, 1979

Newly oil-rich Mexico has fallen behind in meeting its commitments to export oil in recent months, reducing deliveries to some buyers by as much as 40 percent, according to administration and oil industry executives.

The reductions in oil shipments, attributed largely to bottlenecks at seaports and lags in pipeline construction, have had their greatest impact on American oil companies now buying more than 70 percent of Mexico's exports.

Energy Department and industry officials caution that the amount of the Mexican shortfall and the failure to meet contract commitments signed last year and earlier this year are not major factors in the current gasoline shortage in the United States.

Nevertheless, the cuts, estimated at about 200,000 barrels a day or more, have had an impact on some refiners.

"They are falling short of a few hundred thousand barrels a day," said Walter Levy, a New York based international petroleum consultant.

"It definitely adds a bit to our problems, but certainly is not a cause," Levy added. "A little bit more or a little bit less will not change the situation."

Since Petroleos Mexicanos (Pemex), the Mexican national oil company, made massive discoveries during the early 1970s, Mexico has been described as a potential oil colossus. Equally important, for the oil importing countries, aside from the North Sea and Alaska's North Slope, Mexico is the only area outside of the Organization of Petroleum Exporting Countries where major oil finds have been made in recent decades.

Mexican President Jose Lopez Portillo and Pemex now set Mexico's proven oil reserves at 40.2 billion barrels, nearly half again the size of U.S. reserves.

Mexico is now producing about 1.5 million barrels a day, a third of which is sold abroad.

Last year Pemex set a year-end production goat of 1.8 million barrels a day for 1979, and a 2.5-million-barrel-a-day goal for 1981.

State Department officials in Washington and in Mexico City interviewed yesterday said Pemex has failed to meet some of its contract deliveries because of difficulties in dredging a new port at Parajitos along the Gulf of Mexico. Still another difficulty is with the low-income farm groups near the oil fields who have resisted PE-mex's plans to build up pipeline and transportation facilities there.

David Sternlight of Atlantic Richfield, like many oil industry executives, describes the bottlenecks as "temporary."

The cutbacks in scheduled oil deliveries have also affected the Energy Department's plan to purchase oil for the government's strategic petroleum reserve, forcing a revision in its plan.

Mexico sells oil to a number of major U.S. refiners including Exxon, Gulf, Phillips, as well as independent refiners such as Ashland Oil. Ashland, which bought much of its foreign crude oil from Iran before the Iranian revolution, has tried to develop longterm contracts with Mexico.

During the last year, Mexico's President Lopez Portillo has negotiated government-to-government oil agreements with France, Canada, Spain and Japan. In addition, Mexico has replaced Iran as one of Israel's major suppliers.

Mexico generally sells its oil at OPEC prices, but it has levied a surcharge, raising the cost per barrel from the cartel's official $14.55 price to $17.10.

The slowdown in Mexico's mushhooming oil development has spurred speculation in some circles that the country may have grossly overstated its oil potential.

Yesterday's Los Angeles Times had a detailed article citing geologists, oil executives and government officials saying Mexico had exaggerated its reserves.

Senior State Department officials denied this assertion.

"There is no question they have massive reserves and if anything the 40 billion figure may be conservative," said one official. Another adminstration official said Central Intelligence Agency estimates also rank Mexico has having enormous potential.